While the pace of monthly exports has continued unabated, prices in the internal market for quality new-crop coffees have risen this week while producers prefer to wait for more of an improvement over their break-even cost level. Traders said beans from the Cerrado region of western Minas Gerais, for example, were fetching around 122 reais ($103.01) a 60-kg bag at the end of this week, up by some four reais from a week ago. Prices for fine beans from south Minas rose by about the same amount to 124 reais, they said. "Many producers are now selling the lower qualities that they have and financing the retention of the better qualities so they sell them at a better price. That's happening in all the producing regions, said Nathan Herszkowicz, president of the Sao Paulo Coffee Industry Union(Sindicafe).

However, the retention being practiced was only slight and there was no significant problem with supply either for export or for internal use by local roasters, he added. Industry sources cited two reasons for the higher internal prices -- producers were reluctant to sell coffees when prices fell to below 115 to 120 reais a bag, and they now no longer needed to raise cash to pay debts. "The coffee is there...there is a flux for both the export and internal markets. Generally, the producer is resisting because he doesn't have a pressure to sell, he doesn't need to sell to pay debts," Herszkowicz said.

"The harvest is basically over, the producer is selling according to his needs...and it's gradual selling. At the moment the producers are quite liquid, they don't have debts." Many growers had managed to renegotiate credit terms and securitised costs for longer pay back periods, he said. In the export market, traders quoted 3-4 MTGB beans at 18-20 points under New York futures, slightly moreexpensive than a week ago, but stressed that availability was still sufficient although business was quiet. "It's more expensive than what it has been but it's still extremely competitive. It's a narrowing differential but for Brazil, 18 to 20 under is a very attractive price," said Luiz Otavio Araripe of Rio-based trading house Valorizacao.

"It's relatively quiet but Brazil is shipping reasonably good quantities and there is a good availability...it is reduced but it (retention) hasn't made it tight," he said. Very slow business was reported this week in Group II coffees with an absence of sellers. According to data issued by the Brazilian Association of Coffee Exporters (Abecafe), Brazil exported 2.1 million bags of coffee in September, 66 percent up on the same month in 1997 and the highest monthly volume this year. The higher export performance was partly due to rollover shipments of coffees which were delayed in August by industrial action at Brazil's ports, notably the key outlet of Santos.

Abecafesaid October registrations were already indicating exports of around two million bags. Many growers, nervous of a devaluation in the wake of Sunday's elections, opted to hold back some of their production so as to be able to realise dollars quickly if the government chose to apply drastic action to Brazil's currency. In the run-up to the elections, Banco do Brazil received applications on a daiy basis from growers keen to secure financing to cover extra storage costs, market sources said. The bank is charged with administering government credits for the coffee sector. Growers need the financing, whose loan terms are more favourable than in the open market, to cover their harvesting, maintenance and general crop costs.

With some sources already suggesting that Brazil's upcoming 1999-2000 crop could show a substantial fall in production compared with 1998/99, the bullish price outlook could favour producers who have retained enough quality beans to sell. "The (internal) market is going up and if we had adevaluation it would go down. One of the reasons was that people were very keen to see what Fernando Henrique (Cardoso) would do once he was elected," said John Wolthers of Santos coffee exporters Icatu-Sumatra.

Cardoso won a second term as Brazil's president in the elections as voters turned to him as the best candidate to find a way out of Brazil's worst financial crisis in years.

"Producers were right to keep coffee. Producers were very resistant on the way down and obviously they have reacted very forcefully on the way up," Wolthers said.